• 2QFY18 DPU rose 3.4% YoY
• Long WALE, high occupancy
• AUD weakness to impact

2QFY18 Results Within Our Expectations

Frasers Logistics & Industrial Trust’s (FLT) 2QFY18 results came in within our expectations. Gross revenue rose 6.4% YoY to A$43.6m and NPI grew 3.3% to A$35.7m, while adjusted NPI (excluding straight lining adjustments for rental income and after adding back straight lining adjustments for ground leases) jumped 8.1% to A$33.4m.

This was driven largely by the acquisitions of four completed properties in FY17 and contribution from the practical completion of two development assets in Oct and Nov last year. DPU in AUD terms declined 2.9% YoY to 1.70 A cents as only 67.5% of management fees were taken in units in 2QFY18, versus 100% in 2QFY17. If 100% of the management fees were taken in units instead, 2QFY18 DPU would have grown 1.1% to 1.77 A cents.

In SGD terms, due to a currency hedge rate of A$1: S$1.0647 which FLT entered into (2QFY17: A$1: S$1.0014), DPU grew 3.4% YoY to 1.81 S cents. For 1HFY18, FLT’s gross revenue and DPU improved 6.7% and 3.4% to A$86.0m and 3.61 S cents, forming 49.1% and 50.3% of our FY18 forecasts, respectively.

Occupancy and WALE Remains Firm, But Reversions Negative

There were three leases renewed/signed in 2QFY18. Although rental reversions were negative at 7.3%, the three leases carry annual rent increments of 3.15%-3.25%, while two of the leases have long tenure of 7.1 and 10 years, thus providing visibility.

Occupancy continues to be high at 99.4%, while WALE is healthy at 6.75 years. FLT’s balance sheet remains strong, with a gearing ratio of 30.5%, as at 31 Mar 2018. Approval from unitholders has been obtained on 8 May for its proposed acquisition of a portfolio of 21 prime industrial properties in Germany (17) and the Netherlands (4).

Incorporate Weaker AUD Assumption

As FLT has a policy of hedging its FX on a rolling six months basis, we believe its currency hedge rates for its 2HFY18 distributions are likely to come in lower than its 1HFY18 hedges. We now incorporate a weaker AUD-SGD assumption in our model (FY19-FY22F: A$1: S$1.01). Correspondingly, our fair value declines to S$1.21 from S$1.25.

As of the closing price on 8 May, FLT is offering an attractive FY18F distribution yield of 7.0%.

Source: OCBC Research - 9 May 2018